Anticipated Sales Proceeds
When someone is selling their current home but hasn’t sold it yet, the lender can still move forward with their mortgage application by considering the money they expect to get from the sale. However, the lender has to record the exact amount the seller ends up receiving.
Determining the Amount of Net Proceeds
To work out how much money the seller will likely get after the sale, a simple formula is used. If there’s already a set price for the home, you subtract any selling costs and money owed on the home (like mortgages) from this price to get the estimated proceeds. If there’s no set price yet, the lender will assume the sale price is 90% of the listed price, then subtract any money owed on the home to estimate the proceeds. It’s important to note that the 10% reduction from the listed price might change based on how the housing market is doing.
Sales Proceeds Needed for Down Payment and Closing Costs
If the money from selling the current home is needed to help buy the new one, including covering the down payment and any closing costs, the lender must see the settlement statement from the sale of the existing home. This document must show that there’s enough money from the sale to go through with buying the new home. This check has to happen before or at the same time as the closing on the new home.
Like-Kind Exchanges
Money for a down payment that comes from a like-kind exchange, which is a special kind of property sale that gets special tax treatment under Section 1031 of the Internal Revenue Code, is okay to use. But, this has to be properly documented to show it follows the rules.
Employee Relocation
If someone is moving because of their job and their employer is taking care of paying off the mortgage on their current home as part of the move, the lender needs to see the buy-out agreement from the employer. Just showing a sales contract or listing agreement for the home won’t be enough to prove where the money for the new home is coming from.
References
For more details, visit Anticipated Sales Proceeds of the Fannie Mae Selling Guide.